South Africans still not spending despite positive third quarter

Retail trade confidence improved in the third quarter, but remains below average, with dealers in non-durable goods more optimistic about sales than durable goods retailers, reflecting consumer caution on big-ticket purchases.

According to the Bureau for Economic Research (BER) at Stellenbosch University, its quarterly Retail Trade Survey showed confidence improved to 32% in the third quarter, up from 20% in the second quarter.

The BER said the low confidence stemmed from inflation not reaching the South African Reserve Bank’s (Sarb) target range and 50 basis points hike.

It is also possible that expectations of severe load shedding during winter affected confidence.

The BER said although load shedding remains a harsh reality, inflation moved to within the target band, so far in the third quarter.

For the first time since November 2021, the Sarb did not hike the repo rate at its July meeting, which likely contributed to the improvement in retail confidence.

The BER noticed a divergence in how different categories are trending over the past few quarters. A more detailed look at the results showed sectors sensitive to high interest rates show signs of strain, including dealers of new vehicles and retailers selling durable goods saw volumes declining.

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More retail confidence for non-durable goods

On the other hand, non-durable goods retailers were more optimistic about sales volumes in the third quarter than in the second quarter, as tapering food price inflation likely helps the sector.

The BER says although food prices remain high (10% in July), the monthly rate of change decreased substantially, while survey respondents seemed increasingly confident that the increase in retail inflation will continue to decrease.

Retailers who sell semi-durable goods also seemed to continue the growth trend that emerged since the lifting of lockdown restrictions.

The BER says there are several explanations for the relative outperformance of semi-durable goods: a sustained strong recovery in employment, with 412 000 jobs created during the first half of 2023, would have bolstered clothing and footwear growth in particular.

In addition, clothing and footwear inflation, at only 3% during the second quarter, remained below the headline CPI inflation rate, while demand for apparel associated with the 2023 Rugby World Cup this quarter may likely also boost sales among sportswear retailers.

“We may see further improvement in retail sales during the coming quarters if headline CPI continues to move towards the middle of the Sarb’s target range and the central bank maintains its pause in rate hikes. However, as long as load shedding persists, it will continue to dampen consumer spending in the sector.”